Babcock's Irish endeavour

Babcock & Brown Capital (BCM) has written to its shareholders, outlining its case for management internalisation in the face of a controversial alternative offer from Taemas Bridge, a group of former Babcock executives.

Chairman Kerry Roxburgh wrote that the outsourced management arrangements, which Taemas Bridge wishes to reinstate, have failed to deliver value and placed the issue alongside the fund's need to restore its "tarnished reputation" and relationship with Eircom, the Irish telecommunications group in which BCM holds a 57.1 per cent stake. Babcock associates hold a further 7.9 per cent, while the remaining 35 per cent is owned by Eircom employees.

Forming the centre of its internalisation proposal, BCM appointed telecommunications executive Andrew Day as chief executive on February 27. Day, based in London, was previously CEO of Telstra's directories business Sensis and more recently Truvo Services – a European directories business – and will be mandated to manage BCM's investments in Eircom and Israel's Golden Pages under the internalisation agreement.

BCM has been receiving internalisation advice from UBS, which also advised Babcock & Brown Wind Partners on its internalisation. Earlier this month Babcock & Brown Japan Property Trust internalised its management, paying a break-off fee of $22.1 million to Babcock & Brown (Babcock break-off, April 2).

The main competing offer BCM is up against comes from Taemas Bridge, yet there are also a number of proposals it won't disclose. Such proposals are believed to include offers from Singapore Technologies Telemedia and Och-Ziff Capital Management, a New York-based hedge fund run by former Goldman Sachs executives and family members of the Ziff Davis publishing dynasty.

Equity restructuring is a key strategy for Och-Ziff, advised by Jonathan Hamer from Mallesons Stephen Jaques, but other sources say that the hedge fund may support the Taemas Bridge proposal. ST Telemedia, meanwhile, has grown on the back of global acquisitions. Although most of its investments are in the Asia Pacific, through businesses like Singapore's StarHub, its investment in Nasdaq-listed carrier Global Crossing operates in over 45 countries, including Ireland.

Taemas Bridge is offering something it has called "Project Liffey", a bid for BCM by way of a scheme of arrangement worth $1.05 a share; 75 cents in cash up front, another 25 cents paid over 12 months in quarterly instalments and the remainder in "equity equivalent”. It is controversial for its proposed management fee and funding structure.

Taemas' team is led by former Babcock executive Rob Topfer and includes John Shin, Rex Comb, Tammi Lipman, Eytan Uliel and Warwick Bray. Topfer originally established the firm to rescue Lance Rosenberg's Tricom Equities.

It is not exactly known why Taemas was named after a railway bridge over the Murrumbidgee River, but as for Project Liffey, there are several bridges over the Dublin river of that name.

Arguably the most famous of these is the Ha'penny Bridge. When it was first opened, pedestrians were charged a ha'penny to cross it; a toll that its then-owner William Walsh had for 100 years. It was an early example of infrastructure fund ingenuity and we can imagine that Topfner, the former head of BCM and Babcock's investment banking chief, could see the humour in this unique Irish joke.

The Taemas/Liffey group, after all, are effectively proposing to buy the fund using BCM's own money and are proposing a $5 million annual management fee on top of that. Yet Eircom's employees and union members, much like the 19th century Dublin pedestrians, don't seem to find the situation very funny.